Thursday, August 02, 2007

Of Booms, Busts, and Bonds. Mortgaging Our Future

Virtually every MUD, School, College, Water, and Improvement district it seems like has huge plans to spend massive amounts of your tax money on one thing or another. The laundry list of "absolutely essential" expenditures seems endless. But are they? Really? We have a looming crisis close on the horizon. The real estate market is poised to drop like a rock. When (not if!) that happens, the income available from property taxes is going to contract significantly. Homesteaded property assessments cannot rise more that 10% a year, but there is no limit on how much they can drop. The result is going to be that in order to maintain income, tax rates will have to shoot up exponentially. When you vote for a bond, you are essentially co-signing a loan. You agree that you as well as your fellow taxpayers will pay off a loan.

Now, would you be willing to take out a huge loan if it looked like you were possibly about to be laid off at work? If you were smart, of course you wouldn't, but that is exactly what these governmental entities are trying to do. They are trying to get you to co-sign a massive loan with them, when they know that they are looking at a huge budget shortfall just down the road. That loan WILL be repaid. And to do so, they are going to raise your tax rate to do so, at a time when the economy will be shrinking. YOU will be repaying that loan, as will I. When you go into the voting booth and you are presented with a bond proposal. Before you look at what the bond is going to pay for, think about how you are going to pay that loan off. There are a lot of things I'd like to buy too, and I could borrow out the wazoo to buy them, but the question you have to ask is, how are you going to pay that money back?

7 Comments:

Anonymous Brad S said...

Two things:

1. You Texans have some fairly recent experience with falling land values. So much so that, from my understanding, values went down more than 10% from one quarter to the next! How many local governmental units went Chapter 9? Any?

2. Be careful about predicting too much gloom-and-doom for the housing market. I am in the Telecom biz. At this time in 2001, a lot of people were laughing at us and our predictions of expanded broadband usage. At the time, broadband was HIGHLY overbuilt, and broadband companies were going bust left and right. Fast forward to today: Every prediction about broadband usage came true, and we are expanding.

August 02, 2007 7:05 PM  
Blogger Rorschach said...

Brad, actually, at least in the Houston area, real estate values haven't tanked yet, but the warning signs are there. Housing starts are way down, properties are staying on the market longer, inventories of new and used homes are up, and the sales price has started to turn downward. But California has really taken a beating. Most housing slumps start there and work eastward.

2. Yes, telecom NOW is booming, but there were some pretty austere years there if you recall. Everything is cyclical. the Oil biz, the housing biz, and yes, the telecom biz too, and there are warning signs that you can see when it is coming. The problem is that there are always a bunch of people who get comfortable with the risk and start convincing themselves that there is no ceiling to the particular market they are playing in. when they DO hit the ceiling and bounce off of it hard, they invariably have no clue until it is too late.

August 03, 2007 7:42 AM  
Blogger Rorschach said...

The point of my rant, is that a number of governmental entities from the state all the way down to mud districts, are all about to roll out very large bond proposals in November, and those bond proposals are going to be cumulative. Most of these entities get their primary funding from property taxes. and they have been enjoying a windfall for several years now. Many of those in office now have never experienced a housing slump from the perspective of the office they now hold, so they have never seen what effect it will have on their finances. It is easy to get the impression that this gravy train will never end, but it will eventually.

August 03, 2007 7:47 AM  
Blogger Jean said...

Add on top of that, when they say they are "restructuring" the bond debt to prevent tax increases, you know it's a crock. Especially when every time you turn around you see the likes of NHMCCD selling off bonds without bond referendums. That entity has done so twice in the past quarter since their 254 million bond referendum failed last November.

anymore it seems that School Bonds = theft, and I don't care how you slice it.

August 03, 2007 9:09 AM  
Blogger The Dude said...

"properties are staying on the market longer"

There are 7 up for sale on my street alone (in Houston). They've all been up at least six months. Being outside the loop, it's not like they're particularly overpriced. As to whether or not a "bust" is coming I don't know, but I do know I'm really glad I have no plans to move right now.

August 03, 2007 12:22 PM  
Blogger Thunder said...

Strange that the money dogs, contractors and construction hawks move from the private sector like vultures to the public sector when things start to slide.

We start building and doing make work projects and other activities that somehow were never on the priority list when the private sector is booming... the public dole is always the fall back.

August 05, 2007 6:17 AM  
Blogger wtweldon said...

Look at Katy ISD they just release their budget for next year and are projecting a shortfall again... that and they have a total bond debt of 1.45 BILLION right now and are planning on having another bond issued in a year or two.

August 07, 2007 10:06 AM  

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